MURAL - Maynooth University Research Archive Library



    Heterogeneous Noisy Beliefs and Dynamic Competition in Financial Markets


    Rousseau, Fabrice and Boco, Hervé and Germain, Laurent (2016) Heterogeneous Noisy Beliefs and Dynamic Competition in Financial Markets. Working Paper. Department of Economics, Finance and Accounting, Maynooth University. (Unpublished)

    [img]
    Preview
    Download (313kB) | Preview


    Share your research

    Twitter Facebook LinkedIn GooglePlus Email more...



    Add this article to your Mendeley library


    Abstract

    This paper analyzes the competition of heterogeneously informed traders in a multi-auction setting. We obtain that the competition can take different forms depending on the number of traders, trading rounds and the noise in the information. When the number of traders is small and the number of trading rounds is large, traders may trade very aggressively at the opening and at the end of the trading day with lower trading intensity in between. Hence, we can explain volume patterns by the nature of the competition between traders rather than by pattern in the level of liquidity. We find that the noise in the signal may be beneficial for traders when the competition is strong as it gives them a monopolistic position on their private information. The amount of noise maximizing the trader’s expected profit increases with the number of trading rounds as well as the number of traders. This implies that the value of information is closely related to the market where that information is subsequently being used.

    Item Type: Monograph (Working Paper)
    Keywords: efficiency; asymmetric information; noise; liquidity; adverse selection; competition; Financial market crises; Maynooth University Department of Economics, Finance and Accounting; Working Paper;
    Academic Unit: Faculty of Social Sciences > Economics, Finance and Accounting
    Item ID: 7215
    Depositing User: Fabrice Rousseau
    Date Deposited: 08 Aug 2016 14:14
    Publisher: Department of Economics, Finance and Accounting
    URI:
      Use Licence: This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here

      Repository Staff Only(login required)

      View Item Item control page

      Downloads

      Downloads per month over past year

      Origin of downloads